By Karen Tenenbaum, Esq., LL.M. (Tax), CPA
It is not uncommon for restaurants to suffer cashflow problems because of low profit margins. Unfortunately, they may use sales tax money owed to the state to pay other bills. When a business fails to properly track, collect and pay sales tax, the state has various enforcement tools to go after the business, including the following:
States are increasingly using sophisticated technology and data mining to find businesses that underreport sales tax. They can use data from wholesalers, distributors, credit card vendors, and other restaurants to compare against the taxpayer’s records.
If you are behind on paying your taxes, the best thing to do is act quickly and get help. Some states have a voluntary disclosure program which enables you to avoid penalties if you come forward and pay the outstanding taxes before the state discovers your underpayment. An Installment Payment Agreement may also help if you need extra time to pay. If you cannot afford to pay your tax bill, an Offer in Compromise (OIC) may be an option where available. This allows you to settle for less than the full amount due if you qualify.
Sales tax rules are complicated and carry significant risks when businesses get them wrong. Restaurant owners should contact a qualified tax professional to discuss compliance with sales tax rules and how to resolve a tax dispute.
Karen Tenenbaum, Esq., LL.M. (Tax), CPA is Founder and Managing Partner of Tenenbaum Law, P.C., a tax law firm in Melville, N.Y., which focuses its practice on the resolution of IRS and New York State tax controversies. Karen can be reached at [email protected] and at 631-465-5000.
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